Partner & Managing Director, London
Latest figures from the AlixPartners, STR, AM:PM and HVS Q3 2017 Hotel Bulletin explores the slowing demand, cost pressures and profitability challenges faced by UK hoteliers
LONDON (7 November 2017) – Revenue per available room (RevPAR) growth slowed down in eight UK cities including a decline in four, according to the Q3 2017 Hotel Bulletin from AlixPartners, STR, AM:PM and HVS. Data from July to September 2017 shows more muted progress in comparison to previous quarters, with only two cities (Belfast and Edinburgh) recording double digit growth as visitors to the popular tourist destinations continue to take advantage of the weaker pound.
Average RevPAR growth in Q3 2017 was 5%, the lowest level since Q1 2016 when excluding the impact of Aberdeen. However, when looking over the past 20 quarters, RevPAR growth for the 12 cities examined has averaged 6%, despite a lower-growth environment, global political uncertainty and the ever-increasing threat of terror. When compared to UK GDP growth, which has averaged below 1% in the same period , it is clear just how robust the UK hotel market is.
The strong performance in Edinburgh and Belfast was in contrast to that of Aberdeen and Manchester. Aberdeen recorded its eleventh consecutive quarter of falling RevPAR, although at ‘only’ 1% it suggests that the city might finally have bottomed out. An increase in oil prices may provide light at the end of the tunnel for hoteliers but a significant active pipeline in the city (10% of current supply) should not be overlooked as a cause for concern.
Manchester was the worst performer of the 12 cities this quarter, recording its first RevPAR decline (2%) since 2012. Traditionally Manchester has been able to absorb significant amounts of new hotel bedroom supply with minimal impact on demand metrics. However, with over 1,200 new bedrooms in the last 12 months (7% of current supply), it suggests that, in the absence of an uptick in room night demand, Manchester’s hotel market may be approaching saturation. There is further concern for hoteliers with another 1,600 bedrooms (10% of current supply) due to open in the next three years and they will need a marked differentiation in their proposition to drive growth.
For a second consecutive quarter, transaction values surpassed the £1 billion mark totalling £1.6 billion, of which £1.0 billion related to single asset transactions (the highest since 2014). Over half the total value of single asset transactions consisted of one transaction – the sale of the Grosvenor House Hotel for a reported £600 million.
The upward trend in transaction values over recent quarters may be partially attributable to investors rushing to complete transactions before the effects of Brexit are felt. The weaker pound has bolstered top line performance in the UK hotel market, but investors are likely to become increasingly wary of hotel assets as plateauing RevPAR is combined with the expected labour shortages and increasing costs.
The performance of the UK’s hotel sector has thrived since the Brexit vote. However, as hotel operators look to maintain this strong growth, one of the biggest challenges will be controlling costs – in particular labour as there is concern within the industry around sourcing staff. Net migration has fallen to its lowest level in three years, declining 81,000 to 246,000 as of March, of which 51,000 can be attributed to the net migration of EU citizens . The country’s expanding hotel supply means a higher demand for staff at a time when there is already pressure on payroll costs.
Graeme Smith, Managing Director at AlixPartners commented:
“Despite the weaker trading metrics reported in our latest edition of the Hotel Bulletin, it is encouraging to see transaction values exceeding £1 billion for the second consecutive quarter. UK hoteliers are likely to continue to face the twin pressures of increasing costs and declining net migration for some time to come, and this could lead to challenges in maintaining profitability. Hotel operators will need to continue to adapt and innovate if they are to overcome these threats.”
+44 (0)20 7680 6550 / AlixPartnersUK@newgatecomms.com
About the AlixPartners, AM:PM and HVS Quarterly Hotel Bulletin
The Hotel Bulletin analyses demand, supply, pipeline and transactions in the hotel market in 12 cities across the UK. The information contained in this Press Release sets out a summary of the information contained in the Hotel Bulletin and should be read with and is subject to the terms, limitations and assumptions contained in the Hotel Bulletin.
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 Source: Office of National Statistics
 Source: Office for National Statistics